Morgan v. AT&T Wireless Services

APPEAL from a judgment of the Superior Court for Los Angeles County, Victoria Gerrard Chaney, Judge. Affirmed in part and reversed in part. (Los Angeles County Super. Ct. No. BC318474).

The opinion of the court was delivered by: Willhite, Acting P. J.

CERTIFIED FOR PUBLICATION

This appeal involves a consumer class action alleged against defendant AT&T Wireless Services, Inc. (AT&T),*fn1 based upon AT&T‟s marketing and sale of premium cell phones that operated on a wireless network that AT&T allegedly modified in a manner that rendered those premium cell phones essentially useless. What started as a 13-page original complaint alleging causes of action under the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.), the False Advertising Law (FAL) (Bus. & Prof. Code, § 17500 et seq.), the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), and for fraud and declaratory relief, morphed into 47-page third amended complaint (alleging the same causes of action), after the trial court sustained AT&T‟s successive demurrers on the ground that the complaint lacked the requisite specificity. Finding the plaintiffs‟ theory of recovery obscured by extraneous allegations in the third amended complaint, and concluding that plaintiffs still failed to identify with particularity any actionable misrepresentations made by AT&T, the trial court sustained AT&T‟s demurrer to the third amended complaint without leave to amend.

Plaintiffs Joshua Morgan and George Shannon appeal, arguing that the complaint alleges cognizable claims and that they pleaded their claims with as much specificity as is required under the circumstances of this case. While we agree with the trial court that plaintiffs‟ claims are somewhat obscured by extraneous allegations, we hold that plaintiffs have alleged sufficient facts to state causes of action against AT&T under the UCL and the CLRA, and for fraud. We also hold, however, that plaintiffs have failed to allege facts to establish they have standing to bring their FAL cause of action under the theory they allege, and that they failed to raise any issue on appeal as to their claim for declaratory relief. Accordingly, we affirm the dismissal of the FAL and declaratory relief causes of action and reverse the judgment of dismissal as to the remaining causes of action.

BACKGROUND

A. Original and First Amended Complaints

The original complaint in this class action lawsuit was filed by Lindsey J. Bayman (who is not a party to this appeal) in July 2004. Although somewhat short of specifics, Bayman‟s complaint provided the general framework for her claims. She alleged that, at some unspecified time, AT&T advertised and sold the Sony Ericsson T68i (the T68i), a premium cell phone that sold for $300 to $500 dollars, and justified its high price by the fact that the T68i could make and receive calls around the world and had other advanced technologies. She alleged that, at the time AT&T advertised and sold the T68i, it had no intention to continue to support and service the T68i, and had decided "to modify its system in a manner that would substantially degrade service to users" of the T68i, which rendered the phones worthless. Finally, she alleged that, "in an attempt to surreptitiously "phase out‟ these worthless premium phones without paying any compensation to the purchasers, or providing them with a new phone of equal capabilities and compatible with the changes made to their system," AT&T sent T68i users a free replacement cell phone, which AT&T said was an "upgrade"; in fact, it was a $20 phone that could not operate around the world and did not have many of the advanced technologies that the T68i had.

Based upon these factual allegations, Bayman asserted causes of action for violations of the UCL, FAL, and CLRA, and for fraud and declaratory relief, and sought injunctive and declaratory relief, restitution, damages, and punitive damages for herself and the putative class. The complaint made clear, however, that no damages were sought under the CLRA. Instead, the CLRA cause of action included the following language in bold: "Notice Pursuant to Civil Code 1782 [¶] Plaintiff hereby demands that within 30 days from service of this Complaint, defendants correct, repair, replace or otherwise rectify the deceptive practices complained of herein for the entire class pursuant to California Civil Code Section 1770. Failure to do so will result in Plaintiff amending this Complaint to seek damages for such deceptive practices pursuant to California Civil Code Section 1782."

AT&T removed the action to federal court on diversity grounds, and on the ground that Bayman‟s claims were governed by the Federal Communications Act (47 U.S.C. § 151 et seq.). In its notice of removal, AT&T succinctly summarized Bayman‟s claims: "Bayman claims that [AT&T] upgraded its Wireless Communications Services Network (the "WCSN‟) without compensating customers who had purchased certain telephones that were allegedly incompatible with the post-upgraded WCSN." The federal district court granted Bayman‟s motion to remand the case back to state court.

Following remand, a first amended complaint was filed that was virtually identical to the original complaint, except that it added as additional named plaintiffs Morgan and Shannon (the appellants here). The trial court subsequently granted Bayman‟s request to be dismissed as a named plaintiff. AT&T then moved to compel arbitration. The motion was denied, and AT&T appealed from the denial. Six months later, AT&T voluntarily dismissed its appeal and filed a demurrer to the first amended complaint -- a year after the original complaint was filed.

AT&T‟s demurrer challenged all of the claims on the ground that they were not pled with specificity.*fn2 AT&T also argued that the CLRA provided the exclusive remedy for the conduct alleged, and therefore all of the other claims must be dismissed. At the hearing on the demurrer, the trial court announced its tentative decision to sustain the demurrer with leave to amend, on the ground that the complaint lacked specificity. The court explained that the complaint needed to allege: what misrepresentations were made, when they were made, and who made them; what features the replacement cell phone lacked and what features on the original premium phones no longer worked; to the extent plaintiffs were relying upon suppression of facts, what facts established that AT&T had a duty to disclose; and to the extent AT&T made an implied promise to support the T68i for a reasonable time, how that implied promise was breached.

B. Second Amended Complaint

In September 2006, plaintiffs filed a second amended complaint that elaborated on the facts alleged in the earlier complaints. The complaint alleged the following facts applicable to all causes of action:

AT&T advertised the T68i as its premium phone and sold it in a box bearing the AT&T logo. The box described some of the features of the T68i, including that it operated on frequencies used in North America and internationally and that it had Bluetooth technology. The box also stated that the phone could only operate with wireless services provided by AT&T. In addition, AT&T stated on the box that "[t]oday and tomorrow, our commitment is to deliver new technologies plus innovative products and services for all your wireless communications needs."

Consumers who bought the T68i were required to purchase a wireless services plan from AT&T for a minimum of one year, but AT&T encouraged consumers to commit to more than one year by reducing the price for a T68i purchased with a multiple-year service plan. Morgan committed to a two-year service plan in order to reduce the price of the T68i, and Shannon committed to a one-year service plan. "A short time" after plaintiffs bought their T68i phones, AT&T sent them a free T226*fn3 cell phone, which AT&T stated was an "upgrade" from the T68i. The booklet that accompanied the T226 gave instructions for transferring data from the T68i to the T226, and instructed the recipients to send their T68i phones to Sony Ericsson, the manufacturer of both the T68i and the T226.

The T226 lacked certain identified features that the T68i had, including Bluetooth capability and the capability to send and receive calls internationally, and had a retail value of approximately $19.

At the time AT&T advertised and sold the T68i, which operated on AT&T‟s 1900 MHz network system, AT&T did not intend to support that network system and instead intended to develop, expand, and support its 850 MHz network system. As a result of AT&T‟s withdrawal of support, the 1900 MHz network system became more and more degraded, and T68i owners experienced increased dropped calls, decreased service areas, and increased areas of no service, rendering the T68i essentially unusable.

Consumers who accepted the "upgrade" to the T226 and returned their T68i were harmed because they were left with an inferior phone that did not have the features that justified the high price of the T68i, and consumers who kept their T68i were harmed because they were left with a phone that was rendered obsolete due to the degraded 1900 MHz network system.

In setting out their cause of action under the UCL, plaintiffs incorporated by reference the preceding allegations, and specifically alleged that AT&T‟s statements that it was committed to providing for all of its customers‟ wireless needs "today and tomorrow" and the fact that it held itself out as the world‟s leading provider of wireless communications services, combined with its sale of expensive T68i phones that required service contracts for one, two, or more years, would lead the average consumer to believe that AT&T was committed to providing for at least two years (or for the life of the T68i) support and development of the 1900 MHz network system so that the T68i could be operated in North America. Plaintiffs also alleged that AT&T deceived T68i customers by sending them an inferior T226 phone while calling it an upgrade in order to "surreptitiously recall the T68i by inducing T68i owners to mail back their expensive T68i phones."

The causes of action under the FAL and the CLRA and for declaratory relief did not add any additional factual allegations, although plaintiffs alleged in the CLRA cause of action that they gave notice of the alleged violation in the original and first amended complaints in accordance with Civil Code section 1782, and therefore they now sought damages under Civil Code section 1780.*fn4

The fraud cause of action alleged both a failure to disclose and an affirmative misrepresentation. In asserting failure to disclose, plaintiffs alleged that (1) AT&T represented that consumers could purchase a T68i "world phone" with advanced features for exclusive use on AT&T‟s 1900 MHz network if they agreed to commit to pay for AT&T wireless services for at least one or two years; (2) AT&T concealed that it did not intend to service, maintain, develop, and expand the 1900 MHz network; (3) AT&T had a duty to disclose this fact because the undisclosed fact was material to the transaction and because non-disclosure would mislead the consumer to believe that, by purchasing the T68i and committing to pay for wireless services for a period of years, the consumer would be able to use the T68i for a period of years; (4) AT&T concealed the fact in order to defraud plaintiffs and the class; and (5) had plaintiffs and the class known that the 1900 MHz network would be degraded, they would not have purchased the T68i from AT&T. In asserting affirmative misrepresentation, plaintiffs alleged that (1) AT&T falsely represented that it was committed to providing services for all of the wireless communications needs of T68i purchasers, and that "[p]laintiffs and/or members of the class" relied upon those representations in purchasing the T68i; and (2) AT&T falsely represented that the T226 was an upgrade of the T68i in order to induce T68i owners to mail back their T68i phones, and that "[p]laintiffs and/or members of the [c]lass" relied upon that representation in sending back their T68i phones.

Although the second amended complaint provided many of the details that the trial court noted were missing from the first amended complaint, it did not allege when the alleged representations about the T68i or AT&T‟s commitment to provide service were made, when plaintiffs bought their T68i phones and AT&T service plans, when the T226 replacement phones were sent, or when the T68i phones became unusable.

AT&T once again demurred to the complaint on the ground that it failed to plead any of the claims with specificity. In addition, AT&T argued that the UCL and FAL claims were deficient because plaintiffs could not meet the standing requirements under Proposition 64 (which amended the UCL and FAL standing requirements in November 2004, after the original complaint was filed in this action), and that all but the CLRA claim failed to state a claim because the CLRA provides the exclusive remedy for the conduct alleged. Concurrently with its demurrer, AT&T filed a motion to strike the claim for damages in the CLRA cause of action, on the ground that plaintiffs failed to comply with the notice requirement of Civil Code section 1782.

In January 2007, the trial court sustained the demurrer with leave to amend on the grounds that (1) plaintiffs failed to plead critical dates, such as when they purchased their T68i phones, when they could no longer use the phones, and when they received the replacement phones; (2) plaintiffs failed to show they had standing under Proposition 64; (3) the fraud claim required more particularity; and (4) plaintiffs needed to comply with the CLRA notice requirement.

C. Third Amended Complaint

Plaintiffs filed a third amended complaint -- the complaint at issue in this appeal -- in May 2007. Although this complaint alleged the same causes of action and the same theories of liability as the previous complaints, it included considerably more detail.

1. General Facts

In amending the complaint, plaintiffs added allegations of both general background facts and specific representations allegedly made by AT&T and its representatives. Some of those more detailed allegations include:

Information about wireless networks and the development of AT&T‟s networks.*fn5

Excerpts from press releases AT&T issued from January 2002 through May 2003, as well as advertisements that appeared on the AT&T website in August through December 2002, in which AT&T touted its new and expanding GSM/GPRS network and the capabilities of the phones it sold to operate on that network, including the T68i.*fn6

An excerpt from a document AT&T filed with the Securities and Exchange Commission in which AT&T explained that its GSM network had been transmitting at 1900 MHz on towers that were spaced for TDMA systems at 850 MHz, which caused "a decreased level of network quality." To improve quality, AT&T reported that it was "upgrading" its cell sites with new 850 MHz GSM equipment, and had completed 40 percent of its planned 850 MHz upgrade by the end of 2003. Plaintiffs asserted that the T68i became essentially unusable because it could not operate on an 850 MHz network. Excerpts from a post card AT&T sent T68i owners announcing that AT&T was sending them free T226 ...

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